Taking liberty

New laws to combat benefit fraud have been condemned as a "big brother" intrusion into the lives of the individual. The pressure group Liberty intends to mount a legal challenge against a recent Act which it says breached the European Convention on Human Rights, by giving the Department of Social Security powers to examine the files of other public bodies.

The Social Security Administration (Fraud) Act was passed in the final days of the last parliament with cross-party support and a minimum of scrutiny, while press and public attention was focused on the election. The DSS hopes its new powers will eliminate most of what it estimates is an annual pounds 3bn of benefits fraud.

DSS inspectors have been given the right to enter offices of other departments, but the key to the new regulations is "data-matching". The computer systems of the DSS, Inland Revenue, Customs and Excise, the Passport Agency, the Home Office's immigration service and local authorities - which administer housing benefit and council tax benefit - will be compared, to check if all public bodies are given the same information.

Two of the most costly benefit frauds relate to income support payments, with some claimants working while in receipt of benefit, and others claiming to be single parents when a working partner is living with them. The DSS believes that a large proportion of both those frauds will be detected by examination of Inland Revenue databases.

The other big fraud is that of landlords and organised criminal gangs who claim housing benefit using forged identities. The Audit Commission and its audit arm, District Audit, now data-match the records of 308 councils to root out that fraud, which is often accompanied by false claims for higher and further education grants. It has found that each pounds 1 spent on data-matching has saved pounds 100 in fraud detection and prevention.

Giving the DSS extra powers is supported by the Institute for Fiscal Studies, an independent research body. Paul Johnson, deputy director, says: "Most people probably assume it's being done anyway. It is extraordinary that this has not been done before, and it must be the right thing to do."

Mr Johnson doubts, though, whether data- matching will be as successful as the DSS hopes. He suspects that most people claiming benefit while working will not be paying tax either. He also believes that most working partners of supposed lone parents will have given old or false addresses.

The Child Poverty Action Group is concerned by the legislation. Martin Barnes, a welfare rights adviser, says: "The most important aspect is one of process. The House of Lords was not able to properly inspect the Bill. We don't condone fraud, but the emphasis has shifted too much. Errors are bound to be made. We want people to have access to any information about them so they are able to correct it. If it goes on file and it is incorrect it can be used against them."

This view is shared by John Wadham, director of Liberty. "I am surprised there was no upsurge against this, because most people think their tax returns are private, and under this they won't be," he says. Liberty has taken legal advice on the Act, and when the DSS begins using its new powers it will seek a test case to challenge the legislation.

Liberty is also unhappy that information provided for passport applications and in seeking British nationality will be cross-checked against benefit claim records. "We believe it is a key element of data protection that information provided for one purpose should only be used for that purpose," argues Mr Wadham.

He also believes that data-matching will be ineffective, as most apparent discrepancies will relate to mis-spellings of names and addresses, rather than genuine benefit fraud. However, the DSS will not rely on simple information comparison, but will use sophisticated computerised analysis called "artificial intelligence". Databases will be examined in a way that discounts genuine errors which have no cost implications, and highlights instead conflicting information that leads to benefit being paid out wrongly.

It may be some months before the new powers are used by the DSS, as the House of Commons was given an assurance that a code of practice would be drawn up between the DSS and the Data Protection Registrar about how information will be used. The Data Protection Registrar has studied Australian experience of similar legislation and warns that the DSS's aim of saving pounds 1.5bn in the next year, largely through the data-matching, is probably unachievable.

The Child Poverty Action Group is upset that the legislation went through Parliament without opposition from the Labour Party. Cynics might say the prospect of saving billions of pounds, while letting the Conservative Party take any flak, was something Mr Blair's team could not resistn.